City Council Could Close Pension Debate

By Bill Dries

At their next-to-last meeting of the year Tuesday, Dec. 2, Memphis City Council members could put to rest the dominant issue they have faced in 2014 – changing the unsustainable trajectory and liability of city employee benefits.

The council’s agenda includes third and final reading of two ordinances that represent different changes to the city’s defined benefits pension plan.

One version is Memphis Mayor A C Wharton Jr.’s proposal that would move new city employees and those with less than 10 years of service to a separate retirement account that equals the unvested employees’ contributions in the existing pension plan plus a multiplier.

Memphis City Council members are scheduled to take a final vote Tuesday on pension plan changes. Among the options is a plan by council member Myron Lowery, right, shown with council member Reid Hedgepeth.

(Daily News/Andrew J. Breig)

The second version, by council member Myron Lowery, would move new city employees only to a pension plan that is the “hybrid” plan Wharton proposed in October for new hires as well as unvested city employees. The hybrid is a combination of a cash balance plan and a defined contributions plan.

The council defeated Wharton’s plan to switch new hires and unvested city employees to the hybrid plan on its second reading at the Nov. 18 council meeting.

Seven of the 13 council members met Tuesday, Nov. 25, with actuaries from Segal Consulting, the Atlanta firm the council hired to advise it on the pension proposals for what was expected to be its final session with the firm.

“Here you’ve got a really solid lifetime benefit. That’s very, very important,” Segal actuary Rocky Joyner said, referring to Lowery’s proposal. “People hired under the age of 30 are going to turn out better under this plan. If you are hired over the age of 40, you are not going to do as well under this plan as under the current plan.”

Joyner also advised the council and the city administration to follow up with decisions on a preferred retirement age for public safety employees in the fire and police departments.

“Public safety, because of the early retirement ages, have a tendency to be a little lighter under this plan than in the current plan,” Joyner said. “But it depends on when you want them to retire. Currently they are retiring about age 55. If the goal is to encourage them to retire a little later, this plan will of course accomplish that and do that.”

The city’s target in the new plan is how it affects the city’s annual required contribution toward the pension liability. Joyner estimated that by applying a new pension plan to new hires only, the city saves an average of $2 million a year over 25 years.

There would be more savings on the ARC, as it is called, if the city includes unvested employees with five years or service or up to the 10-year mark, as Wharton has proposed.

“You would have additional savings, but that savings will all be generated by taking benefits from people who are not yet vested in those benefits,” Joyner said.

City Finance Director Brian Collins said the administration is sticking by its recommendation of including unvested city employees as well as new hires.

“If you just stuck with the mayor’s plan, that’s where you get the most savings of $10 million,” he said. “If you just looked at it with five years, it is closer to $3 million or $4 million a year off the status quo ARC.”

The council approved changes to health insurance coverage for employees and retirees in June with some later amendments by both the council and Wharton that kept some retirees covered as well as their spouses at least through 2015.

Also on Tuesday’s agenda is a vote on using $1 million from the city’s reserve fund to fully fund an additional police recruit class in the current fiscal year, which ends June 30.

And the council votes on using $1.5 million in revenue from a tax on mixed drinks to go toward the testing of more of the Memphis Police Department’s backlog of untested rape kits.

In committee sessions Tuesday, council members get a formal presentation at a 9:30 a.m. meeting of the administration’s “economic impact plan” for the Whitehaven area that includes Graceland.

And Michael Putt, Wharton’s nominee to be the new Memphis Fire director goes before council members at 8:30 a.m. Putt is currently the department’s deputy director and would succeed Alvin Benson who became the Shelby County Fire chief this week.